The AES Corporation (AES) Q1 2019 Earnings Call Transcript

The AES Corporation (AES 0.80%)
Q1 2019 Earnings Call
May. 07, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to The AES Corporation's first-quarter 2019 financial review conference call [Operator instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Ahmed Pasha, head of investor relations. Please go ahead.

Ahmed Pasha -- Head of Investor Relations

Thank you, Brandon. Good morning, everyone, and welcome to our first-quarter 2019 financial review call. Our press release, presentation and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call.

There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are: Andres Gluski, our president and chief executive officer; Gustavo Pimenta, our chief financial officer; and other senior members of our management team. With that, I will turn the call over to Andres.

Andres Gluski -- President and Chief Executive Officer

Good morning, everyone. Thank you for joining our first-quarter 2019 financial review call. Since our last call, we have made significant progress on a number of fronts. We continue to transform the company, growing our renewables and LNG businesses, simplifying and streamlining our portfolio, reducing costs and improving our overall risk profile.

Specifically, we reported first-quarter adjusted EPS of $0.28 and remain confident in our full-year outlook. We're on track to attain investment-grade ratings in 2020. We signed long-term contracts for approximately 500 megawatts of renewable capacity, increasing our backlog to six-point-two gigawatts. We signed a 12-year agreement to sell up to 18 tera BTUS of LNG annually in the Caribbean beginning in 2020.

Today, we're announcing a target of $100 million of additional annual cost savings to be realized by 2022 as a result of our digital initiatives. And we agreed to sell our businesses in Jordan and Northern Ireland for $211 million. Gustavo will discuss our financial results and capital allocation plan in more detail following my remarks. Turning to Slide 4.

Our core strategy continues to revolve around three themes: first, enhancing the resilience of our portfolio to deliver attractive returns; second, increasing our backlog of long-term contracted projects to ensure profitable growth; and third, investing in innovative technologies to maintain our competitive edge and market-leading positions. Today, I will review the progress we've made since our last call in support of these themes. Turning to Slide 5. We continue to take steps to derisk our portfolio and make it even more resilient.

We remain on track to attain investment-grade ratings by 2020 supported not only by our financial metrics, but also by the lower level of risk and higher quality of our portfolio. We expect to achieve our carbon intensity reduction target of 50% by 2022 and 70% by 2030, reducing potential regulatory risk and attracting a broader investor base. One of the ways we are reducing our carbon intensity is through our green blend and extend strategy where we are negotiating new long-term renewable PPAs with existing long-term thermal customers. Through this win-win strategy, we preserve the value of our existing contracts while extending our average contract life and earning a return on our incremental capital investments.

We are currently in advanced discussions for additional large green blend and extend contracts in Chile and Mexico. Separately, we just initiated similar conversations on green blend and extend with PREPA in Puerto Rico. Another way we're transforming our portfolio is by exiting businesses. For example, in late April, we announced the sale of more than two gigawatts of overwhelmingly thermal generation in Jordan and Northern Ireland.

These sales decrease our merchant exposure, lower our carbon intensity, and reduce our presence to 13 countries. In line with our capital allocation framework, we will primarily invest these proceeds in renewables in the Americas. Turning to Slide 6. As we've discussed previously, we're focused on growing our business through long-term U.S.

dollar denominated contracts with limited merchant, commodity and hydrology exposure. One additional initiative that I would like to mention today is the expansion of our business with commercial and industrial customers. This approach further enhances our resilience by diversifying our customer base and providing greater protection from regulatory and macroeconomic factors in our markets. Now turning to our backlog.

Our growth in renewables continues as can be seen on Slide 7. During the first quarter, we signed new long-term PPAs for approximately 500 megawatts of renewables, consistent with our expectations. Turning to Slide 8. We now have a total backlog of six-point-two gigawatts, and we expect to sign two to three gigawatts of new PPAs every year for a total of approximately 12 gigawatts of new capacity by 2022.

By then, we project that the U.S. will represent almost half of our earnings versus about one third today. Now to our projects under construction, beginning on Slide 9. Of the 4.5 gigawatts currently under construction, approximately 40% is now renewables.

This percentage will grow as we bring online the large conventional thermal plants we contracted a number of years ago while adding new wind, solar and energy storage projects. As you can see on Slide 10, the renewable projects under construction are split equally between the U.S. and international. All of these projects are expected to come online in the next 18 months.

We are particularly pleased with the speed at which we've been able to transition these projects from development to construction. For example, as you can see on Slide 11, we received all necessary permits for sPower's 500-megawatt Highlander Solar project in Virginia, the largest solar project in the Mid-Atlantic. This project has long-term contracts with C&I customers such as Apple and Microsoft, and we expect to begin construction this summer with completion targeted for 2020 and 2021. Turning to Slide 12 and our conventional projects under construction.

Our OPGC two plant in India is in the testing phase and is running at full load. The plant is expected to be operational later this month, and will deliver much needed power to the Indian grid. Our Southland repowering project in Southern California is approximately 90% complete, and the project is on track to come online in the first half of next year. And our Alto Maipo hydroelectric project in Chile is advancing as planned and is now 78% complete with 72% of the tunneling work done.

Turning now to our LNG business on Slide 13. You see the expansion of our LNG projects is complementary to our renewable businesses as it provides capacity while displacing heavy fuel oil and diesel with cheaper and cleaner natural gas. This business is based on long-term tolling agreements with no direct commodity risk. Another benefit of our LNG projects is that once they are built, they can be scaled up at relatively low cost as most of the key infrastructure is already in place.

We are focusing our LNG growth on two major markets. First in Vietnam where we are making very good progress toward the development of a landmark project with 450 tera BTUs of LNG storage capacity, and two gigawatts of associated combined cycle gas plants. We expect this project to significantly contribute to our growth beginning in 2023. Second, in the Caribbean and Central America, where we have a total of 150 tera BTUs of LNG storage capacity in Panama and the Dominican Republic.

Our guidance assumes that we would contract some of the excess capacity available at these two terminals. In fact, since our last call, we signed a 12-year contract for up to 18 tera BTUs of annual capacity. With this contract, we have already locked in the terminal capacity payments that are assumed in our guidance through 2022. The remaining uncontracted capacity provides us with $0.03 of potential EPS upside relative to our guidance.

Turning to Slide 14. The third component of our core strategy is to invest in innovative technologies to maintain our market-leading position and realize commercial and operational efficiencies. As most of you know, AES is at the forefront of battery-based energy storage. Fluence, our energy storage joint venture, is the leading provider of grid-scale storage in the world with 81 projects in 18 countries totaling 776 megawatts deployed or awarded.

Now let me say a few words on the recent thermal incident at our 2-megawatt energy storage facility we installed for Arizona Public Service, which resulted in serious injuries of four first responders last month. Of course, our top priority is the health, safety and recovery of the first responders. Fortunately, we understand from statements made by the hospital that all are expected to make a full recovery. Regarding the event itself, Fluence immediately dispatched a team of technical and operational experts to support APS in the incident root cause investigation.

AES and Fluence have committed to share what they can from the investigation, especially insights that will be helpful to the entire industry and first responders in efforts to prevent similar incidents anywhere in the world. AES has been safely operating a fleet of battery-based energy storage systems for over a decade, and today has storage systems operating in multiple countries, uses and environments. We continue to believe in the use of lithium-ion batteries for energy storage and continue to see rapidly growing demand for this technology and its many applications. Finally, turning to Slide 15.

Today, we announced the launch of an additional $100 million annual cost savings program. Our savings target is based on our current digital initiatives, which are expected to be fully implemented by 2022. Although we have significantly reduced costs over the last several years, we're taking our efforts to the next level by applying new digital initiatives and analytics across our $33 billion asset base. As most of our business is long-term contracted at fixed U.S.

prices, much of the benefits from these digital initiatives will flow to our bottom line. Specifically, the main activities include utilizing AI for predictive maintenance in outage prevention, using technologies such as robotics and drones for solar and wind maintenance, and inspection and implementing process in administrative and support functions. On an annual basis, we are targeting a 5% reduction in the total expense for these activities, net of any costs to achieve. So we feel very confident about our ability to achieve $100 million in annual run rate savings by 2022.

Now I'll turn the call over to Gustavo to discuss our financial results and capital allocation in more detail.

Gustavo Pimenta -- Chief Financial Officer

Thank you, Andres. Today, I'll cover our first-quarter results, improving credit profile and capital allocation. In the first quarter, we make solid progress toward our full-year guidance range of $1.28 to $1.40. As shown on Slide 17, adjusted EPS was $0.28 primarily reflecting the benefits of improving efficiencies, and lower parent interest expense resulting from about $1 billion in debt paydown.

This improvement was offset by the impact of asset sales and shutdowns. With our first-quarter results and two-point-two gigawatt coming online in the year to go, we are on track to achieve our full-year guidance. Turning to Slide 18. Adjusted pre-tax contribution or PTC was $272 million for the quarter, a decrease of $16 million.

I'll cover our results in more detail over the next four slides beginning on Slide 19. In the U.S. and Utilities SBU, relatively flat PTC reflects higher rates following the resolutions of rate cases late last year at DPL and IPL, as well as lower expected asset retirement obligations at DPL. These impacts were partially offset by the exits of coal-fired generation at DPL and Shady Point.

Regarding DPL's DMR extension filing, there is not much to report but expect activity to increase as the transition at the commission is complete and the new chairman is now in place. Accordingly, we remain on track for an expected ruling in 2020, and we continue to feel confident about the merits of our case. At our South America SBU, lower PTC was largely driven by Argentina where we saw lower dispatch at our plants. This generation profile was in line with our projections and was expected to impact the first quarter only.

Relatively flat PTC at our Mexico, Central America and the Caribbean or MCAC SBU reflects an extended planned outage for maintenance and repairs at our Changuinola hydro plant in Panama. This was partially offset by the commencement of operations at AES Colon CCGT last year and outage-related insurance proceeds in the Dominican Republic. Finally, in Eurasia, lower results primarily reflect the sales of our businesses in the Philippines and the Netherlands, as well as the shutdown of 300 megawatts of capacity at Ballylumford in Northern Ireland. In Bulgaria, there have been no significant developments since our last call.

Our plant continues to be highly dispatched, reinforcing its criticality to the Bulgarian grid, and we are being paid on time. Turning to our improving credit profile on the Slide 23. Since we first established our goal of reaching investment grade in 2016, we have reduced parent debt by $1.3 billion or 26%. We continue to have ongoing discussions with the rating agencies and remain confident in our ability to attain investment-grade ratings in 2020.

We believe this improvement in our credit profile is helping us not only to reduce our cost of debt and improve our financial flexibility but also to enhance our equity valuation. Over the next two years, we expect our credit metrics to show further improvement through growth in our parent free cash flow, as well as modest additional delevering. While parent credit improvement is a key focus of ours, we are also constantly looking for opportunities to strengthen the capital structure of our subsidiaries. This is demonstrated by the $1.5 billion of liability management transactions we have executed so far this year at three businesses alone, Gener, Tiete and DPL.

In all cases, we're able to take advantage of good market conditions to extend maturities and lower interest rates. For instance, at DPL, we refinanced $400 million of the holdco 2021 notes, increasing the term by eight years and reducing the interest rate by 290 basis points. Now to 2019 parent capital allocation on Slide 24. Beginning on the left-hand side, sources reflect $1.1 billion of total discretionary cash, including $725 million of parent free cash flow.

Sources also include $384 million in asset sale proceeds, which is $60 million higher than our previous disclosure for 2019. Proceeds include approximately $170 million from the sell-down of sPower's operating portfolio and $211 million from the sale of our businesses in Jordan and Northern Ireland announced a couple of weeks ago. Now to use on the right-hand side. Including the 5% dividend increase we announced in December, we'll be returning $361 million to shareholders this year.

We expected allocate another $150 million this year to parent debt, largely to strengthen our investment-grade metrics. And we plan to invest over $400 million in our subsidiaries, leaving about $200 million of unallocated cash. Finally, moving to our capital allocation from 2019 through 2022 beginning on Slide 25. We expected that our portfolio to generate $4 billion in discretionary cash, which is about 35% of our current market cap.

About 80% of this cash is expected to be generated from parent free cash flow. The remaining $800 million comes from asset sale proceeds, about half of which has been announced or closed this year. Turning to the uses of the discretionary cash on the Slide 26. Roughly 40% of this cash will be allocated to shareholder dividends.

Looking forward, subject to annual review by the board, we expect the dividend to grow 4% to 6% per year, in line with the industry average. We expected to use $300 million for debt reduction, including a portion to maintain credit neutrality as we pursue the remaining planned asset sales. We are also planning to use $1.5 billion for our equity investments in our backlog and projected PPAs. Once completed, all of these projects will contribute to our growth through 2022 and beyond.

The remaining $670 million of unallocated cash will be used in accordance with our capital allocation framework to achieve our financial objectives. With that, I'll turn on the call back over to Andres.

Andres Gluski -- President and Chief Executive Officer

Thanks, Gustavo. Before we take your questions, let me summarize today's call. 2019 is off to a good start as demonstrated by our financial results and progress on our strategic goals. We remain on track to attain investment-grade ratings in 2020.

We are completing our large conventional construction projects. We are assigning long-term U.S. dollar denominated PPAs for renewables. We are leveraging our position and experience to expand our LNG infrastructure business.

And we are targeting $100 million of additional annual cost savings, further enhancing the resilience of our 7% to 9% average annual growth target. Accordingly, we remain confident in our ability to deliver attractive double-digit total return to our shareholders. Operator, we are now ready to take questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Ali Agha with SunTrust. Please go ahead.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Thank you. Good morning.

Andres Gluski -- President and Chief Executive Officer

Good morning, Ali.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

First question, Andres, just to get a little better sense on the timing around this incremental cost reduction. So you currently have an ongoing cost reduction program giving you benefits of $100 million in '19 and in '20. So when does this incremental $100 million actually kick in? Does it kick in '21? And you said the run rate of $100 million by '22, how much can you specifically capture in '21 and '22 from this program?

Andres Gluski -- President and Chief Executive Officer

That's a great question. So first, let me be very clear. This is additional to the programs that we have announced in the past, and this is also net of any cost to achieve those savings. We feel very confident in achieving these savings because there's about 5% of expense on those categories, and these initiatives are currently under way.

So with that said, it's also sort of growing over time because this is an annual run rate savings. So as you correctly pointed out, the larger benefits will be in '21 and in '22. So by '21, we should probably have about half of these savings, and the full amount would be in the run rate of 2022.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

OK. And then secondly, the 100 -- $1.5 billion that you targeted as equity investment in new projects between now and '22, how much of that is already in hand right now in terms of at least having the signed PPA, if not construction? And I know in the past, you talked about potential investment by Tiete on a wind company in Brazil. Where does that stand? And is that part of this $1.5 billion?

Andres Gluski -- President and Chief Executive Officer

What this includes is that -- which we're committed to, projects which are under construction and being completed, includes all the renewables, but it also includes a run rate in renewables, getting into new projects to hit that two to three gigawatts of annual capacity. So it will include a portion, say, of expected PPAs that we're signing as we go. Because between signing and completion is about 18 months. So obviously, some of the things that are in that number have not yet been signed, so that includes part of the run rate.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

And so --

Gustavo Pimenta -- Chief Financial Officer

Yeah. So Ali, Gustavo here. If I can complement, I would say 70% to 80% is in the pocket of deals that we're signed. But as Andres said, there is a portion yet to be allocated and expected to be captured, so things like investments in subs would fall under that category.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

OK. And the Tiete transaction?

Gustavo Pimenta -- Chief Financial Officer

So Tiete, they haven't announced yet how they're going to fund it, so we can't comment on that. But if needed, that would come from that $1.5 billion of projected PPAs that we have in the chart.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

I see. Last question, can you just remind us how much of the LNG capacity is not yet contracted? And what's the timing when you think potentially you could contract and see that incremental $0.03 of earnings?

Andres Gluski -- President and Chief Executive Officer

You know, as I said, a lot of these infrastructure already exist, so it really depends on the timing of the additional investments. So we've completed what we said we would do, you know by 2022. So basically, we already have that. So I think basically, we have -- let's see, we have about -- probably about 30% still to go, so we have about 50 tera BTUs.So between the Caribbean and Central America, and that just is a question when we sign up more customers.

So stay tuned. I think we're doing very well. And quite frankly, with relative prices today of U.S.-based LNG and oil. It's very attractive for customers to sign up.

So we've completed what we said we would do, and now we're actively pursuing this additional $0.03.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Understood. Thank you.

Andres Gluski -- President and Chief Executive Officer

Thanks, Ali.

Operator

Our next question comes from Julien Dumoulin-Smith with BoA.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey, good morning.

Andres Gluski -- President and Chief Executive Officer

Good morning, Julian.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey, congrats. Lots of updates this morning. I just wanted to clarify a couple of things here, if you can, very quickly. First, on incremental cost savings, how much of that is parent versus allocated or at the subsidiary levels? And then how much, what -- you say this is incremental.

What's the total amount especially of parent SG&A savings you're talking about through '22? Just to make sure we're fine-tuning things precisely here.

Andres Gluski -- President and Chief Executive Officer

Yeah. Let me be clear here. So a portion of that savings will be obviously at the sub level. That -- however, this is what we expect to flow up to corp, OK? So this is -- basically, we expect $100 million of savings to what hits corp.

Even though a lot of those savings will occur in the subs, but that means that obviously, there will be additional savings, which we'll share with our partners. So this is what actually hits AES.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. And in total cost savings, I mean -- or rather the SG&A kind of target just overall? Because I know that there was already some kind -- degree of cost savings reflected through '22.

Andres Gluski -- President and Chief Executive Officer

Yes. Honestly, the SG&A savings, especially at corp, are relatively small. This -- a lot of this is operational efficiencies, predictive maintenance, less outages, better planning. So we feel very confident because a lot of things which some other companies have done, and so we're really leapfrogging here to put ourselves at the leading edge.

As you know, we had a new Chief Information Digital Officer Sanjeev Addala. He's working hand in hand with our Chief Operational Officer Bernerd Da Santos. So we feel very good about this and going forward and we've identified where the savings would come from. And it's also quite frankly leapfrogging and catching up with the leading edge of all of our -- other companies around the world.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. And then turning back to the U.S. side of the equation. You said I think about half of your earnings by '22 versus one third today would be coming from the U.S.

Can you clarify, especially in light of your latest procurement efforts, how you are addressing ITC recognition for solar assets? And how much will be tax credits when you think of that U.S. earnings contribution? I'm just trying to making sure we're fine-tuning things appropriately, especially given the litany of different accounting approaches taken across the sector.

Gustavo Pimenta -- Chief Financial Officer

Sure. Julien, this is Gustavo. The 50% is mostly driven by the fact that 50% or even more of our free cash flow has been deployed in the U.S. So it's more equity going to the U.S.

and the four you see that the proportion of the U.S. growing. We are growing the distribution business, IPL, DPL as well. So that's the main driver.

As we've mentioned in the last call, from our perspective, a lot of the renewable is outside the U.S. So the growth is not really, from an ITC, PTC recognition, not really a major driver for our 7% to 9%. And a lot of the growth, the 7% to 9%, we do have a lot of deals already in the pocket like Southland coming online, OPGC, cost cutting, things like that. So it's not a major driver in our case because as I said, 50% is in the U.S.

Even in the U.S., you have 40% wind, which has a low impact. And I think what is more important, our cash flow has also grown at 7% to 9% ratio, which kind of reinforced the quality of the earnings.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Fair. And then lastly, just if you can quickly clarify, on Mexico, PREPA, Chile, the blend and extend, what does that imply for your existing assets? And just perhaps elaborate a little bit more on the opportunity side, especially in Puerto Rico and Mexico, given you guys haven't done much there historically.

Andres Gluski -- President and Chief Executive Officer

Well, you know, as we said, the sort of green blend and extend, what does it essentially consist of? You have a long-term thermal contract where we really make our returns on the capacity payments and energy is the pass-through. So we basically go to the client and say we will replace a portion of the energy being generated by the thermal plant with renewable energy if you sign a long-term PPA. So this is a win-win for both because we get a new contract for a renewable and get a return on that, and we still get our capacity payment. So part of this is that you have to -- we learned how to run our formal plants at a lower min to make space for the renewable.

Now in the case of Mexico, we have TEG/TEP which are thermal plants. Of course, in Chile, we have a number of thermal plants where we've already been applying this with our large commercial and industrial customers. And in Puerto Rico, you may have seen that we're in discussions with PREPA to see how we could some modifications to allow for green blend and extend as well. So basically, we are reacting to customers' desires for more green energy.

In many cases, the cost of the energy is lower than the variable cost of running the thermal plant, and we're lowering carbon footprints in line with what they desire. And very importantly, we're keeping the capacity. Because when everybody talks about renewables, that's great for energy, but what about capacity, the ability to maintain the lights on 24/7? So we really feel that there are two ways to do it, green blend and extend or energy storage, and I think we're well-positioned in both sides.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. Thank you.

Andres Gluski -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from Christopher Turnure with J.P. Morgan. Please go ahead.

Christopher Turnure -- J.P. Morgan -- Analyst

Good morning. I wanted to ask more color on Alto Maipo. I think you said it was 78% complete as of now and the tunneling was around 72% complete. Could you maybe, you know comment a little bit more on that, particularly on the progress of tunneling since your last update?

Andres Gluski -- President and Chief Executive Officer

Yeah. I mean we continue to execute on our plan. I think it's going very well. I believe now we have six tunnel boring machines in operation.

And we remain on track for what we have said in the past of completing this project by starting in 2020. So I guess that's the only update that I can really say that we're -- since we did the restructuring where the contractor has a lot more, let's say, skin in the game and applied the learnings that we've had over the last couple of years, we're executing as per the plan.

Christopher Turnure -- J.P. Morgan -- Analyst

OK. Excellent. And then switching gears to Mexico. Could you just kind of comment broadly on your existing assets there in the project where you've relatively recently signed a contract? Kind of how you're thinking about the political and regulatory environment, given some of the headlines over the past 3 months.

Andres Gluski -- President and Chief Executive Officer

Well, you know, our strategy in Mexico has always been to sign long-term dollar-denominated contracts with investment-grade off-takers in the private sector. So we're relatively a little exposed, let's say to some of the changes they have announced for the CFE and others. So our projects continue. I think our clients are looking for green energy.

In many cases, they're looking for the green blend and extend. So those products continue on track, and we expect to be signing more sort of green blend and extend projects in Mexico.

Christopher Turnure -- J.P. Morgan -- Analyst

OK. And then -- kind of with that no slowdown of future project potential?

Andres Gluski -- President and Chief Executive Officer

Again, we remain on track, and we think our strategy was very resilient and robust because from day 1, it was really long-term dollar-denominated contracts with investment-grade off-takers and many of them are exporters, for example. So they really -- it's -- having a dollar-denominated cost is not an issue for them. It actually helps them sort of with their future forecast.

Christopher Turnure -- J.P. Morgan -- Analyst

OK. Great. Thanks, Andres.

Andres Gluski -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Greg Gordon with Evercore ISI. Please go ahead.

Greg Gordon -- Evercore ISI -- Analyst

Thanks, guys a couple of questions. Good morning.

Andres Gluski -- President and Chief Executive Officer

Good morning, Greg.

Greg Gordon -- Evercore ISI -- Analyst

A couple of questions. The -- it looks like some of the currency exposures for -- not for 2019, which I know are quite small, but for 2020, which are a bit larger, have shifted as I look from the Q4 presentation to the Q1 presentation. So can you just talk how you -- or how you've -- how your commodity -- how your currency hedging has changed? And if that's the case, why?

Gustavo Pimenta -- Chief Financial Officer

No, it hasn't moved materially. Greg, this is Gustavo. It hasn't moved materially. We continue to be mostly dollar denominated.

And if anything, when there is a remaining exposure in some particular market, we do pursue a hedge here at corp to offset that. So it's not something that we are concerned with it and no material differences versus where we were before.

Greg Gordon -- Evercore ISI -- Analyst

OK. Great. It did look small. Thank you.

The second thing was with regard to the cadence of the expected backlog realization in the renewables, which is Slide 8. I think you're still basically assuming you, over time, achieving almost exactly the same amount. But I think some of the realizations have shifted from '19 to '20 to '21. Am I misreading that? Or then if not, can you just talk about how the -- as you firmed up the backlog, what you're looking at?

Gustavo Pimenta -- Chief Financial Officer

Yeah. Greg, Gustavo again. Yes, you're right, I think the only major change from the prior disclosure has been Highlander, which we got the approvals. It took a little bit longer than we initially forecasted.

So we moved that. You're going to see in the appendix, we moved that to 2020 and 2021. So initially, it was -- part of that was in 2019. That's the only change, so the rest is in line.

Greg Gordon -- Evercore ISI -- Analyst

OK. And I know -- and just to reconfirm, you are assuming a favorable outcome in the DMR filing in your long-term guidance, correct?

Gustavo Pimenta -- Chief Financial Officer

Yeah. We have -- we assume a continuation. We haven't disclosed the particular number there, but we assume a continuation of support. We believe it's needed, and yes, it is in our projections.

Greg Gordon -- Evercore ISI -- Analyst

OK. But given, a, you have a guidance range; and b, you've just basically added $0.10 of incremental earnings from cost savings that -- if you were to not get the DMR, and you were to risk adjust for not getting the DMR, are you still comfortable that you'd be in that guidance range?

Andres Gluski -- President and Chief Executive Officer

What I'd say is, again, we're adding resilience to our forecast, so the additional $100 million of cost savings. Realize that the DMR, where it's really crucial is at the DPL level, and it's crucial for DPL to undertake its modernization program.

Greg Gordon -- Evercore ISI -- Analyst

I completely agree with you. I'm just a -- I know it's an investor debate and that's why I asked.

Andres Gluski -- President and Chief Executive Officer

OK. Thanks, Greg.

Operator

Our next question comes from Charles Fishman with Morningstar Research. Please go ahead.

Charles Fishman -- Morningstar Research -- Analyst

Thank you. Good morning. One of the savings in your waterfall chart, Slide 17, was effective tax rate for the recently ended quarter going down to 32%. I realize you don't give guidance on effective tax rate, but you could sort of back into it from the guidance you have on adjusted PTC and adjusted EPS.

In the last couple of years, it's been running around 30% on an annual basis. Is the first quarter just normally run higher? Or you -- is something changing with respect to what you're seeing on your effective tax rates because of the mix of earnings from different countries? Or is there any other additional color you can provide?

Gustavo Pimenta -- Chief Financial Officer

Yeah. This is Gustavo again. Yes, that's right. It's mostly driven by the mix.

We are not seeing any material change versus what we had anticipated, which is somewhat between 29% and 31% for the year. But yes, on a quarterly -- after quarter, we should have -- and it's not uncommon to have some volatility driven by the mix. But on a full-year basis, this should be normalized and the 29% to 31% should be the final number.

Charles Fishman -- Morningstar Research -- Analyst

Got it. Thank you. That's the only question I have.

Gustavo Pimenta -- Chief Financial Officer

Thanks, Charles.

Operator

Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.

Steve Fleishman -- Wolfe Research -- Analyst

Yeah. Hi, good morning. Just -- could you just give us your thoughts on the political economic environment in Argentina, and potential things we should be watching there for you?

Andres Gluski -- President and Chief Executive Officer

Sure. Steven, you know, as I said in the past, in Argentina, I don't see it as anything sort of binary. So really, the question, is there any degradation in the earnings? And we've seen a slight degradation, $0.01 or $0.02 from, let's say, where we were thinking maybe a year ago. So our Argentine assets are excellent assets and it's a very robust business.

Since I've been involved in the Argentine business since the year 2000, we've made money every year. We've paid dividends every year. We did have three years where we're able to convert those dividends into dollars because there were currency restrictions in place so to put it into perspective. So first, it's a very resilient business.

And depending on government policies, there could be some degradation, but it's not a binary issue, I believe. I think with the political situation in Argentina, they're having elections in October, and we'll see who wins, whether it's a continuation of the current president. It could be Lavagna who's a Peronist or you could have Cristina Kirchner who's running on her own. And so we'll have to see.

I don't think there will be any immediate -- regardless of who wins, I don't think there'll be any immediate outcome or changes in this sector that would require laws for it to change. I think that the -- as I said in the past, when people got very worried about the exchange rate in Argentina, sort of looking like they had a terrible harvest, 30% lower, but they're -- if they have normal harvest and with the increase in their natural gas exports -- actually reaching exports of natural gas eliminating imports, I think that side looks a lot stronger. So it's really a question of what -- how the change in the regulatory structure is. We've been there before, and as I said, it's not a binary issue.

Overall, we feel cautiously optimistic that things will continue more or less as they are today.

Steve Fleishman -- Wolfe Research -- Analyst

OK. And then just on the battery fire that occurred, I know you're still investigating that and the like. But I'm just -- in some of the stories I read, I think there were -- or at least some that talked about there being fires in other parts of the world with batteries. And I don't know if you have examples of others and what might have caused those other ones -- just so we kind of have an idea what it could be.

Andres Gluski -- President and Chief Executive Officer

Yeah. First, what we had was a thermal event. We didn't really have a fire per se. And you're right, there have been over the years.

This is nothing new. Over the years, a number of thermal events or fires in lithium-ion batteries in everything from cars to energy storage. So this is not totally new. So we have to investigate what was it that occurred in this event, exactly what was the root cause and make sure that we engineer or take all precautions to really minimize the likelihood of such an event in the past.

Things are changing in terms of some of the technologies, but we've had lithium-ion batteries on a grid scale, 10 to 40 megawatts operating for 10 years already without an incident. So we're investigating it. There's not much I can say at this point. But as I mentioned, we will share the crucial aspects of the finding to make sure that everybody takes whatever precautionary measures can be also taken, so this is not -- there's not a repeat of this event.

Steve Fleishman -- Wolfe Research -- Analyst

OK. Thank you.

Andres Gluski -- President and Chief Executive Officer

Thank you, Steve.

Operator

Our next question comes from Gregg Orrill with UBS. Please go ahead.

Gregg Orrill -- UBS -- Analyst

Yeah. Thank you. You talked about some items in the quarter related to generation dispatch in Argentina and there was some issues in Panama, but you didn't modify your adjusted PTC guidance for those regions. Can you talk about what your thinking is?

Gustavo Pimenta -- Chief Financial Officer

Yeah, Gregg. Gustavo here. Yes, the impact in the quarter, as we mentioned in my prepared remarks, for example, in the case of Argentina and also in Panama with Changuinola, were expected. So we had that in our plan already.

So first Q came really in line with our initial projections and expectations, so there was no need for us to adjust going forward. And again, why -- we're catching up toward the yearend. As I said also in my prepared remarks, we are having two-point-two gigawatts coming online from today until December. And that's going to be a major driver of earnings going forward.

So that's why you see this variance quarter after quarter.

Ahmed Pasha -- Head of Investor Relations

Thank you, Brandon. Thanks, everybody, for joining us on today's call. As always, the IR team will be available to answer any questions you may have. Thanks again and have a nice day.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Ahmed Pasha -- Head of Investor Relations

Andres Gluski -- President and Chief Executive Officer

Gustavo Pimenta -- Chief Financial Officer

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Christopher Turnure -- J.P. Morgan -- Analyst

Greg Gordon -- Evercore ISI -- Analyst

Charles Fishman -- Morningstar Research -- Analyst

Steve Fleishman -- Wolfe Research -- Analyst

Gregg Orrill -- UBS -- Analyst

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